Incorporation means creating a new corporation. A corporation is an organization that is approved by your state to conduct business. In the eyes of the law, a corporation is a real person. It can own things and it can enter into agreements. Also, just like a person, it can sue and be sued.

Most people form corporations to protect their personal assets because the owners of a corporation are not personally responsible for the corporation's debt. This is called "limited liability protection".

Parties

LLC

S Corporation

C Corporation

Person Who Forms
Business Entity

Organizer

Incorporator

Incorporator

Owners

Members

Shareholders

Shareholders

Ownership
Rules

No
Restrictions

Up
to 100 shareholders; only one class of stock allowed;
shareholders must be individuals, estates or certain
trusts

No
restriction

Personal
Liability
of the Owners

Members
generally
have personal
liability protection

Shareholders
generally have personal
liability protection

Shareholders
generally have personal
liability protection

Federal
Tax Treatment

The
LLC itself is not taxed (unless chosen to be taxed);
profits and losses are passed through
to the members

With
the filling of IRS Form 2553, a C Corporation becomes
a S Corporation, where the profits and losses are passed
through to the shareholders

Corporation
taxed on
its earnings at a corporate level and shareholders
are taxed on any
distributed dividends

Management

The
Operating Agreement sets forth how
the business is to be
managed; all members or managers can be designated to
manage
the business

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by the California Department of Corporations. Any Complaints
concerning the content of this website may be directed to
the California Department of Corporations at www.corp.ca.gov
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